Development partner had a good thing going with R&R and didn't know it, judge rules

A Polk County judge's ruling in a dispute between development partners sheds some insight into the complications of commercial real estate projects.

Judge Robert Blink ruled earlier this month that R&R Realty did not violate the terms of an operating agreement with Kansas City Life Insurance Co. by unilaterally creating an owners association at the Highland Pointe Office Park development in Urbandale and setting aside land for a stormwater detention basin.

The two companies have been partners in signature Greater Des Moines projects for the past six years, including Paragon Office Park in Urbandale.

In his ruling, Blink pointed out that Kansas City Life has profited from the relationship, one which for years put R&R in charge of making day-to-day operational decision for the various partnerships the two companies have created.

Earlier this year, Kansas City Life's entity Urbandale Best LLC filed a lawsuit claiming R&R exceeded its authority under the Highland Pointe agreement.

Kansas City Life and R&R are equal partners in the 45-acre retail and office development that straddles Plum Drive, just west of 86th Street and south of Interstate 35/80.

Their dispute has held up the sale of a parcel of land for a hotel. Since the ruling, negotiations for that deal have resumed.

In his ruling, Blink said that R&R was playing by the rules created in its operating agreement with Kansas City Life and to avoid further disputes, he laid out exactly what those rules would be going forth.

However, Blink seemed to chide Kansas City Life for bringing the case to court. Previous company officials have understood that with the exception of significant land sales, long-term leases and financing, R&R had the authority to make operational decisions, the judge wrote in a 21-page ruling.

And he pointed out that Kansas City Life has made a fair amount of money through its relationship with R&R.

"Economic decisions made by R&R affect both members equally," Blink wrote. "There is no evidence that R&R made imprudent decisions. From 2006 to 2012, when the United States economy was in turmoil, the Paragon ventures under R&R's management performed reasonably well. Not only was this the worst period in the real estate development industry in over a century, but several Des Moines area competitors went bankrupt during this period."

In the notes to the ruling, Blink pointed out that Kansas City Life has received more than $34 million of its initial $50 million investment in the Paragon projects - the Highland Pointe Office Park partnership is Paragon Best LLC. Returns on some of the Paragon projects have exceeded 10 percent and from 2006 to 2011, net operating income was more than $21 million, growing from $1.1 million in 2006 to about $5.7 million in 2011.

Blink wrote that the lawsuit was not the "first unreasonable intervention" by Kansas City Life.

The judge concluded that Kansas City Life had breached its contract and ordered it to pay R&R $23,122 in attorney fees.